Accounting in Latvia is governed by national law, Latvian accounting standards and legislation enacted by EU institutions.
The Law On Accounting is an 'umbrella law’ in the accounting area and applies to all traders, cooperative societies, the branches of foreign traders and the permanent establishments of non-residents (foreign traders), societies and foundations, political organisations (parties) and their associations, religious organisations, trade unions, institutions funded by the state or local authorities, state and local authority agencies, and other legal and natural persons carrying on economic activities.
In accordance with the Law on Accounting, the Accounting Council shall adopt Latvian accounting standards – generally and repeatedly applicable guidelines harmonised with the current laws and regulations regulating accounting, EU laws and International Accounting Standards for the valuation of assets, equity and liabilities and the recognition and recording of income and expenditure in accounting.
Companies, European Economic Interest Groups and cooperative societies and European Companies registered in Latvia irrespective of their type of activity or the volume of their turnover shall draw up annual financial statements in accordance with procedures specified in the Law On Annual Financial Statements, legislation regulating the activities of participants in the finance and capital market or the regulations or instructions of the Finance and Capital Market Commission.
The general principles for participants in the finance and capital market relating to the field of company financial statements and their audit are stipulated by the laws regulating their activities, while regulatory documents and instructions are harmonised with the relevant directives prescribing the legal framework for accounting and preparation of financial statements in the EU.
Companies, European Economic Interest Groups and cooperative societies and European Companies registered in Latvia must comply with the Law on Consolidated Annual Financial Statements where such companies are the parent companies of a group.
The Law on Consolidated Annual Accounts
More detailed requirements for the annual financial statements of banks and other financial institutions, and for insurance and reinsurance companies are prescribed in the rules and regulations of the Finance and Capital Market Commission, which provide that the evaluation of financial statement entries and disclosure of information shall be carried out pursuant to the International Accounting Standards issued by the International Accounting Standards Board, International Finance Reporting Standards and the interpretation of standards issued by the International Financial Reporting Interpretations Committee and approved by the European Commission and published in the European Union Official Journal. This requirement does not apply in the single case of credit unions.
The single-entry accounting system allows for the keeping of income and expenditure records and the completion of tax returns and forms in accordance with the requirements of the taxing Acts or regulatory enactments issued under those Acts.
The single-entry accounting system may be used by sole traders, individual enterprises, farms and fisheries whose turnover (income) from economic activities in the previous tax year does not exceed LVL 200,000 and other natural persons carrying on an economic activity. The income and expenditure of the abovementioned persons may be recorded in a business income and expenditure journal (Cabinet Regulations No 188 of March 20 2007 On Procedures Allowing the Single-Entry Accounting System To Be Used by Sole Traders, Individual Enterprises, Farms and Fisheries, and Other Natural Persons Carrying On an Economic Activity).
A double-entry accounting system allows for the preparation of annual financial statements containing a balance sheet (a statement of the balances of the preparer’s assets and their sources as at the balance-sheet date) and other stipulated elements of the annual financial statements and for the completion of returns and forms in accordance with the requirements of the taxing Acts or regulatory enactments issued under those Acts. This form of accounting applies to all enterprises registered in Latvia, apart from those exempted by the Law On Accounting.
When starting up business a company shall perform stocktaking, recording all the property in the company’s ownership or at its disposal, as well as a comparison of the company’s assets and liabilities and those of its debtors and creditors. The results of the inventory shall be disclosed in the inventory records. In future such stocktaking shall be performed at the end of each accounting year as well as on the cessation of the company’s activity, upon reorganisation or in cases where the company is to be declared insolvent.
Annual financial statements and consolidated annual financial statements must be filed with the State Revenue Service and be accompanied by the certified auditor's report. The State Revenue Service forwards these documents electronically to the Register of Enterprises.The Enterprise Register must make the documents received public.
Every enterprise must systematically arrange and keep all source documents, accounting registers, inventory lists, annual financial statements and the notes thereto, and accounting organisation documents (account plans, codifiers etc.) in the company archives.
The Law On Accounting provides that the time period for keeping the documents shall be as follows:
- for annual financial statements and the notes thereto, and for the general ledger – 10 years. After that they shall be transferred to the National Archives.
- For inventory lists, accounting registers and accounting organisation documents – 10 years.
- For source documents regarding monthly salaries (remuneration), arranged by years and months – 75 years.
- For other source documents – 5 years.
Where the enterprise ceases its activities, the liquidation committee, in coordination with the Office of the Director General of the National Archives, shall determine the procedures for the subsequent storage of the company archives. The chief executive of the company shall be responsible for maintenance of the company archives.
The Ministry of Finance is the leading government organ in the field of finance, including the sub-fields of national and local authority budgets, short- and long-term financial policy, accounting and company auditing policy, gambling and lottery organisation policy, national and consumer interest protection policies for the use of precious metals and stones and their products, tax policy, customs operational policy, public sector wages policy and foreign financial aid as well as policy for coordinating and using European Union structural funds and Cohesion Funds.
The State Revenue Service is a direct administrative institution under the Minister of Finance in charge of keeping records of tax payment and taxpayer records, the collection of national taxes, duties and other mandatory payments in the Republic of Latvia, and for collecting taxes, duties and other mandatory payments due to the European Union. It also implements customs policy and handles customs affairs.
The Finance and Capital Market Commission is a fully fledged, autonomous institution regulating and monitoring the activity of the finance and capital market and participants therein according to its objectives and aims.
The Latvian Association of Certified Auditors (LZRA) is an independent professional corporation of Latvian certified auditors uniting all certified auditors and certified audit firms in Latvia according to their professional activity. The LZRA implements the professional self-regulation of certified auditors while maintaining their professional standards and ethics, as well as monitoring the implementation of legislation governing other professions and the professional activity of its members. It also performs other duties as prescribed by law and its own rules. The Ministry of Finance supervises the LZRA in matters relating to the certification of auditors, the licensing of certified auditor firms and other duties delegated to the LZRA by the Law On Certified Auditors. The Ministry of Finance is the institution responsible for auditing along with the competent institutions of other EU Member States and third countries.
The Virtual Club of Accountants is a website created by a private initiative, collecting the information necessary for accounting and providing advice and guidance.